Question

Parker Imports Ltd. is expected to pay a $2.00 dividend in one year. The required rate of return is 9 percent. The firm uses a dividend payout ratio of 25 percent. Calculate the leading P/E ratio in the following cases:
a. Expected growth rate = 4 percent
i. Today
ii. In one year (immediately after dividend paid)
b. Expected growth rate = 8 percent
i. Today
ii. In one year (immediately after dividend paid)
c. If a firm is expected to have a constant dividend growth rate, do you expect the P/E ratio to change over time? Explain.



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  • CreatedFebruary 25, 2015
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